First Thing Today | May 2, 2022
Risk aversion to start the week... Bears took firm control of price action in the grain and soy markets overnight as traders returned from the weekend. As of 6:30 a.m. CT, corn futures are trading mostly 9 to 11 cents lower, soybeans are 11 to 14 cents lower, winter wheat is 9 to 11 cents lower and spring wheat is mostly 5 to 6 cents lower. Front-month U.S. crude oil futures are around $3 lower and the U.S. dollar index about 400 points higher this morning.
More rains and planting delays... Waves of rain this week will stall planting in the Central Plains, Midwest, Delta and Southeast, according to World Weather Inc., with a short-term break late this week and into the weekend before additional rain occurs next week. The weather forecaster says West Texas will get some thunderstorms this evening, but they will be sporadic. A few amounts of moderate rain is expected, but most of the moisture will be light. A follow-up system Wednesday into Thursday might produce a little more rainfall. Rains fell on HRW wheat production areas over the weekend and more is expected in northern and eastern areas of the region early to mid-week this week and then drier late this week into next week.
Russia attacks Ukraine grain infrastructure... Russian attacks on Ukraine’s grain infrastructure look like attempts to reduce the competition for Russia’s export markets, German Agriculture Minister Cem Oezdemir said. “We are repeatedly receiving reports about targeted Russian attacks on grain silos, fertilizer stores, farming areas and infrastructure,” Oezdemir was quoted as telling the Redaktionsnetzwerk Deutschland. The suspicion is growing that Russian President Vladimir Putin is seeking “in the long term to remove Ukraine as a competitor”, Oezdemir said. Ukraine could lose tens of millions of metric tons of grain due to Russia’s blockade of its Black Sea ports, triggering a food crisis that will hit Europe, Asia and Africa, Ukrainian President Volodymyr Zelenskyy said.
Firm raises EU sunflower crop forecast... Strategie Grains increased its forecast for this year’s sunflower crop in the European Union amid an expected rise in planted area as farmers use an EU authorization to use fallow land to compensate for potential shortages in Black Sea supplies. The consultancy expects the EU 2022 sunflower seed crop to reach 10.7 MMT, up from the 10.2 MMT forecast last month and now 2.9% above last year’s output.
Record March soy crush expected... USDA is expected to report the March soybean crush was record-large for the month at 193.3 million bu., according to a Bloomberg survey. That would be up 2.7% from last year. Corn-for-ethanol use is expected to total 457.2 million bu., up 8.8% from March 2021.
China’s manufacturing sector contracts more than expected in April... China’s official manufacturing purchasing managers index (PMI) fell to 47.4 in April from a reading of 49.5 the prior month. That was the second straight month of contraction in the factory sector and the steepest pace since February 2020, as widespread Covid-19 lockdowns curbed production and disrupted supply chains. China’s Caixin/Markit manufacturing PMI fell to a 26-month low of 46.0 in April, as both output and new orders fell at the second steepest pace since the survey began in early 2004, while export orders shrank at the sharpest rate in nearly two years.
The week ahead in Washington... Focus will be the Fed’s rate hike Wednesday following its two-day monetary policy meeting. The market has fully priced in a 50-basis-point hike and several other increases this year. But some analysts are already speculating the first quarter GDP contraction of 1.4% may cause the Fed to be more cautious following this week’s half-point hike. The Fed will also reveal more about plans to start shrinking the central bank’s $9 trillion asset portfolio. On Friday, April employment data will be released, with economists expecting a gain of 375,000 non-farm payrolls. On the farm policy front, news could come this week on WHIP+ (USDA may rename the program) details for eligible 2020 and 2021 crops.
Farmer reaction to White House plan to boost wheat and soybean acres... Much higher loan rates will not bring rain to parched areas of the country and current prices if they continue will be the key reason for planting intentions ahead. Some sorghum growers wondered why the White House plan did not include their crop in hoped-for double-cropping plans. Meanwhile, many wonder who actually came up with the odd plan to use a dramatic boost in loan rates to alter plantings, and if USDA personnel had much of a role in it. Some think the plan was pushed by the National Economic Council and/or the Office of Management and Budget. It will be interesting to see what if anything USDA Secretary Tom Vilsack says about the proposals but talks with some USDA officials find them pained to defend the plan.
Farm bill update... The farm bill first field hearing took place Friday in Michigan with the need for accelerated program implementation and funding the primary point made. More field hearings are ahead, with the next one being in Arkansas. As for the timing of the next farm bill, most but not all farm bill watchers expect a one- or two-year extension, but there are some Capitol Hill staffers who think a new omnibus bill can occur in 2023. An interesting development is that some Capitol Hill staffers think there could actually be additional farm bill funding made available, largely due to climate- and conservation-oriented program funding.
Regan pledges certainty on WOTUS is coming; biofuels will have a role in clean energy transition... EPA Administrator Michael Regan on Friday testified on the fiscal year (FY) 2023 budget for his agency. He was questioned by lawmakers on EPA’s actions on waters of the U.S. (WOTUS) where the administration is seeking to replace the Trump administration’s Navigable Waters Protection Rule (NWPR), having already proposed to reset the definition of WOTUS back to a pre-2015 definition reflecting court actions. Regan defended undertaking the process to come up with a new WOTUS definition even as the Supreme Court later this year is expected to rule on some portions of WOTUS. Regan also pledged that biofuels will play an important role as the administration keeps up its push to transition to electric vehicles, noting that those options will not be available for all Americans immediately. Regan said the transition that will take place in transportation will “take place over time. There is a role for agriculture in that transition, so we are focused on making sure that is properly managed.” Regan’s comments did not touch on the coming final Renewable Fuel Standard (RFS) levels for 2020, 2021, and 2022 that the agency has pledged to issue by June 3 and on their proposal regarding setting RFS levels in 2023 and beyond. Those details will be important relative to the program moving forward and they will be measured against Regan’s pledge that biofuels have a role to play ahead.
Germany calls for phased-in ban on Russian oil imports to the EU... That steps up pressure on Brussels to find a deal between divided member states ahead of a decision for the bloc’s policy on Russian energy. Jörg Kukies, one of chancellor Olaf Scholz’s closest advisers, said Berlin was in favor of an oil embargo but needed a “few months” to prepare for an end to Russian crude shipments. Germany had previously said it would need until the end of the year. Bottom line: The EU will most likely give member countries until the end of this year to ban Russian oil imports.
Fundamental strength needed for cattle futures rebound... Cattle futures broke down technically and finished near their lows last week. That’s likely to trigger followthrough selling early this week, though corrective buying could surface if wholesale beef trade shows strength and/or expectations for steady to firmer cash cattle trade develop.
May hogs now at a discount to cash index... Front-month May hog futures closed last Friday at $100.90, an 87-cent discount to where the CME lean hog index is quoted today (as of April 28). The premium in June hogs is down to $4.605. The discount structure in May hogs and limited premium in summer-month contracts should limit seller interest, though futures have broken down technically and money flow is into the short side of the market.
Weekend demand news... Exporters reported no tenders or sales.
See ‘Policy Updates’ for late-breaking morning news updates... For updates to items in “First Thing Today” or any late-breaking morning news stories, check “Policy Updates” on www.profarmer.com.
- 8:00 a.m. Commodity Costs and Returns — ERS
- 10:00 a.m. Export Inspections — AMS
- 2:00 p.m. Amber Waves, May issue — ERS
- 2:00 p.m. Milk Cost of Production Estimates — ERS
- 2:00 p.m. Cotton System Consumption and Stocks — NASS
- 2:00 p.m. Fats & Oils: Oilseed Crushings, Production, Consumption and Stocks — NASS
- 2:00 p.m. Grain Crushings and Co-Products Production — NASS
- 2:00 p.m. Flour Milling — NASS
- 2:00 p.m. Flour Milling - Annual — NASS
- 3:00 p.m. Crop Progress — NASS